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Ascending Triangles
by Swingtrading.com
Ascending triangle is rally to a new high followed by a pull back to an intermediate support level, a second rally to test the first peak followed by a second decline to a level higher than the intermediate term support level and finally a rally to fresh new highs on strong volume.
The technical target is derived by measuring the vertical height of the triangle and applying this length to the new breakout level.
*Ascending triangles are among the most reliable of all technical patterns because both supply and demand are easily defined.
The defining characteristic of ascending triangles is the pattern of rising lows and a series of equal highs. This combination of points can be connected to form a right angle triangle.
*If a stock violates any part of the triangle during its formation the pattern it should be considered void and trading positions should be abandoned.
Triangles are about indecision and as such volume should slow noticeably as the pattern is being constructed.
*It is most important that volume surge as the stock rallies through the reaction high. This tells the technical trader that supply has been absorbed, short covering is rampant and the next leg of the bull phase is about to begin.
*Upside breakouts often lead to small 2-3% rallies followed by an immediate test of the breakout level. If the stock closes below this level (now support) for any reason the pattern becomes invalid.
This pattern typically occur after a stock has had a strong move higher due to a positive fundamental development. Investors come to believe that much higher stock prices are justified given the improved fundamental outlook but a large portion of investors that were smart enough to have bought the stock at much lower prices disagree. These "smart money" investors consider the extreme optimism as little more than an opportunity to liquidate positions. Using fundamental metrics, they set a price to sell their large blocks of stock and wait. In effect, they are beginning a distribution process based on their interpretation of fair value. The first step in the distribution process occurs after one particularly bullish fundamental development. The stock surges to a new high and Wall Street analysts begin pounding the table with new "buy" recommendations.
The increased volume is a perfect opportunity for the smart money to liquidate positions. They begin selling and the rally is stopped in its tracks creating a small top. As buyers realize that there is plenty of supply at this level prices begin to falter and in short order the stock trades back to a previous intermediate term support level. Because this low is the reaction to the previous rally to new highs, it is often called the reaction low. In this very limited sense, ascending triangles are very much like double and triple tops -- rising demand meets entrenched supply. In fact, because the fundamental news is so strong Wall Street analysts dismiss the weakness as simple profit taking and a new rally soon begins.
On strong volume the stock surges toward the recent high where it is once again rebuffed by aggressive sellers. It is at this point that speculators recognize a trend and they begin adding new short positions just beneath the recent high. This added selling pressure should push the stock significantly lower but bullish enthusiasm is rampant. The stock does move lower but the pull back is subdued, in fact, the stock does not reach the reaction low set in the aftermath of the first move to new highs.
Days later another positive development occurs and the stock begins moving toward the recent high on very strong volume. Speculators step-up and add to their short positions but the supply of stock from smart money investors is being satiated. It soon becomes clear that buyers are going to win this battle because sellers are running out of stock to sell. As the stock pierces what had been strong resistance a strange dynamic occurs, those traders that had been selling the stock short at the recent high are motivated to cover short positions to cut losses -- thereby creating increased demand for the stock at a time when supply has been severely curtailed. Against this backdrop ongoing bullish enthusiasm leads to a spectacular price breakout on strong volume. Very soon after the breakout several fundamental analysts make positive comments, aggravating the imbalance between supply and demand. Weeks later the stock surges to a substantial new high. In this rare instance smart money investors are trumped by ongoing bullish fervor and the level that had been resistance becomes important support.
Ascending Triangles
by Swingtrading.com
Ascending triangle is rally to a new high followed by a pull back to an intermediate support level, a second rally to test the first peak followed by a second decline to a level higher than the intermediate term support level and finally a rally to fresh new highs on strong volume.
The technical target is derived by measuring the vertical height of the triangle and applying this length to the new breakout level.
*Ascending triangles are among the most reliable of all technical patterns because both supply and demand are easily defined.
The defining characteristic of ascending triangles is the pattern of rising lows and a series of equal highs. This combination of points can be connected to form a right angle triangle.
*If a stock violates any part of the triangle during its formation the pattern it should be considered void and trading positions should be abandoned.
Triangles are about indecision and as such volume should slow noticeably as the pattern is being constructed.
*It is most important that volume surge as the stock rallies through the reaction high. This tells the technical trader that supply has been absorbed, short covering is rampant and the next leg of the bull phase is about to begin.
*Upside breakouts often lead to small 2-3% rallies followed by an immediate test of the breakout level. If the stock closes below this level (now support) for any reason the pattern becomes invalid.
This pattern typically occur after a stock has had a strong move higher due to a positive fundamental development. Investors come to believe that much higher stock prices are justified given the improved fundamental outlook but a large portion of investors that were smart enough to have bought the stock at much lower prices disagree. These "smart money" investors consider the extreme optimism as little more than an opportunity to liquidate positions. Using fundamental metrics, they set a price to sell their large blocks of stock and wait. In effect, they are beginning a distribution process based on their interpretation of fair value. The first step in the distribution process occurs after one particularly bullish fundamental development. The stock surges to a new high and Wall Street analysts begin pounding the table with new "buy" recommendations.
The increased volume is a perfect opportunity for the smart money to liquidate positions. They begin selling and the rally is stopped in its tracks creating a small top. As buyers realize that there is plenty of supply at this level prices begin to falter and in short order the stock trades back to a previous intermediate term support level. Because this low is the reaction to the previous rally to new highs, it is often called the reaction low. In this very limited sense, ascending triangles are very much like double and triple tops -- rising demand meets entrenched supply. In fact, because the fundamental news is so strong Wall Street analysts dismiss the weakness as simple profit taking and a new rally soon begins.
On strong volume the stock surges toward the recent high where it is once again rebuffed by aggressive sellers. It is at this point that speculators recognize a trend and they begin adding new short positions just beneath the recent high. This added selling pressure should push the stock significantly lower but bullish enthusiasm is rampant. The stock does move lower but the pull back is subdued, in fact, the stock does not reach the reaction low set in the aftermath of the first move to new highs.
Days later another positive development occurs and the stock begins moving toward the recent high on very strong volume. Speculators step-up and add to their short positions but the supply of stock from smart money investors is being satiated. It soon becomes clear that buyers are going to win this battle because sellers are running out of stock to sell. As the stock pierces what had been strong resistance a strange dynamic occurs, those traders that had been selling the stock short at the recent high are motivated to cover short positions to cut losses -- thereby creating increased demand for the stock at a time when supply has been severely curtailed. Against this backdrop ongoing bullish enthusiasm leads to a spectacular price breakout on strong volume. Very soon after the breakout several fundamental analysts make positive comments, aggravating the imbalance between supply and demand. Weeks later the stock surges to a substantial new high. In this rare instance smart money investors are trumped by ongoing bullish fervor and the level that had been resistance becomes important support.
Momma and baby are doing fine. Dad is exhausted.
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